Capital gains not chargeable where statutory ownership vested without cost and later payment only formalised occupancy rights.

Capital gains were held not chargeable where land ownership vested in a protected tenant without any cost of acquisition. The assessee's statutory payment under section 7(3) was treated as a premium for formal registration of occupancy rights, not as a purchase price creating a new asset or new right. As the property was acquired without an ascertainable cost, the computation provisions for capital gains could not be applied. The first appellate authority's view on non-taxability was sustained, and the cross-objection became infructuous.

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Issues: Whether capital gains could be charged on the transfer of the land when the assessee acquired ownership rights without paying any cost of acquisition, and whether the payment made under section 7(3) was only for formal recognition of occupancy rights.

Analysis: The land was held by the assessee as a protected tenant and, by operation of the A.P. (Telangana) Tenancy and Agricultural Lands Act, 1950 and the A.P. (Telangana) Abolition of Inams Act, 1955, ownership rights in the land vested in him without consideration. The payment of Rs. 1,272 under section 7(3) was found to be a premium for registration as an occupant and not a purchase price creating a new asset or new right. Since the asset was acquired without an ascertainable cost of acquisition, the computation provisions for capital gains could not be applied.

Conclusion: Capital gains were not chargeable on the sale of the land and the Revenue's challenge failed.

Final Conclusion: The order of the first appellate authority was sustained on the core question of taxability, while the assessee's cross-objection was rendered infructuous.

Ratio Decidendi: Where ownership rights in property vest without consideration and a later statutory payment merely formalises an existing right, such payment does not constitute cost of acquisition for capital gains purposes.

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